Chinese President Xi Jinping shakes hands with US Vice President Joe Biden inside the Great Hall of the People on December 4, 2013 in Beijing, China.
Lintao Zhang | Getty Images News | Getty Images
The leaders of the Group of Seven agreed that there is a need to de-risk, not decouple from China, and recognized the challenges caused by the practices of the mainland that “distort the global economy.”
“We are not decoupling or turning inwards,” the G-7 said in a joint statement released over the weekend as leaders met in Hiroshima, Japan. “At the same time, we know that economic stability requires de-risking and diversification.”
The leaders added, “We will seek to address the challenges posed by China’s non-market policies and practices, which distort the global economy. We will counter harmful practices, such as illegitimate technology transfer or data disclosure.”
Reiterating that stance, President Joe Biden said at a press conference on Sunday: “We’re not looking to separate from China, we’re looking to de-risk and diversify our relationship with China.
He explained that means taking steps to diversify supply chains, “so we are not dependent on any country for the necessary product. It means resisting economic pressure together and resisting harmful ones work that harms our workforce. It means protecting a narrow set of advanced technologies critical to our national security.”
Speaking after the G-7 finance ministers and central bank governors earlier this month, the US Treasury Secretary Janet Yellen said that China’s behavior is “something that should concern all of us.”
“There are examples of China using economic pressure on countries that are acting displeased with China from a geopolitical perspective,” he said, citing China’s trade disputes with Australia and Lithuania as examples.
In their statement, the G-7 leaders said, “We will foster resilience to economic coercion. We also recognize the necessity of protecting certain advanced technologies that could be used to threaten our national security without so overly limiting trade and investment.”
The world’s leading democracies said the group would “reduce over-reliance on our critical supply chains” while stressing the need to work with China, citing its role in the international community and the extent on its economy.
“We stand ready to build a good and strong relationship with China, recognizing the importance of engaging frankly and expressing our concerns directly to China. We will act for our national interest,” the statement said.
The administration of President Joe Biden has previously notified industry groups such as the Chamber of Commerce of measures aimed at curbing American investments in China, according to media reports.
Such rules mean stricter guidelines for US companies that must notify the government of new investments in Chinese technology companies, according to Politico. Deals in critical sectors such as microchips will also be banned, according to the publication.
UK Prime Minister Rishi Sunak also told reporters that London was open to following the US lead on Chinese investment restrictions, the Financial Times reported.
Decoupling risks ahead?
Ahead of the G-7 summit this weekend, Goldman Sachs economists Hui Shan and Andrew Tilton said they expected steps to be taken by the Committee on Foreign Investment in the United States, or CFIUS – an agency of the US government that reviews deals involving foreign investment in the US to see if the transaction violates the country’s national security.
In a note previewing the set of measures earlier this month, they said there could be “greater focus on refining the existing tariff, export control, and investment regimes once the basic frameworks are already there.”
“We expect them to be relatively narrowly focused on advanced semiconductors and related technologies, corresponding to the export controls of last autumn, and do not expect significant restrictions on secondary investments market portfolio.”
‘Remote’ damage
The impact of a widening rift between the US and China could lead to further damage, Allianz economists said in a note on Wednesday.
“The economic implications of a further decoupling between the West and China would be far-reaching,” they wrote, adding that the damage to China’s economy would be “far from negligible.”
“China could retaliate by restricting the supply of critical raw materials where it has a dominant position, which could seriously disrupt global supply chains,” they said.
“But this is unlikely because it already applies some forms of outbound investment restrictions and still looks towards economic pragmatism.”
The cause of Taiwan
Further developments could take place ahead for US-China relations after Washington concluded negotiations with Taiwan on several trade items on Friday, marking a potential deal in the first part of the bilateral. “21st Century Trade” initiative..
The first agreement under the initiative includes: customs administration and trade facilitation, good regulatory practices, local regulatory services, anti-corruption, and small and medium-sized enterprises, the office of the United States Trade Representative said in a release.
US trade representative Katherine Tai said of the agreement, “This achievement represents an important step forward in strengthening the US-Taiwan economic relationship.”
China has repeatedly warned against deepening bilateral engagement between the US and Taiwan.
Goldman Sachs argues that with the Taiwan factor, the focus of US-China tension may shift from trade to military.
“The more immediate focus is on building Taiwan’s military capabilities to prevent a conflict,” US political economists Alec Phillips and Tim Krupa wrote earlier this month, adding that They have “good odds” that the US Congress will pass additional support to the current plans. .